MM Insurance News 04/11/18

CASES OF CONSEQUENCE

NINTH CIRCUIT Excess/”Other Insurance” (AZ)

The Ninth Circuit has ruled in Admiral Ins. Co. v. Community Ins. Group SPC Ltd., No. 16-17321 (9th Cir. Mar. 14, 2018)(unpublished) that the excess provisions of two "other insurance" clauses were not mutually repugnant because the Admiral policy stated that its excess coverage provision did not apply if the other insurance was specifically written to provide excess coverage.

ELEVENTH CIRCUIT Offers of Judgment/Fees (FL)

In Highland Holdings, Inc. v. Mid-Continent Cas. Co., No. 17-14455 (11th Cir. Mar. 12, 2018), the Eleventh Circuit affirmed a Florida court’s finding that a policyholder’s rejection of an insurer’s $200,000 offer of judgment did not entitle the insurer to recover its fees under Fla. Stat. § 768.79 after obtaining a ruling that it did not owe the insured coverage at all. In an unpublished disposition, the Court of Appeals declared that Section 768.79 only applies to civil actions for “damages,” whereas this case involved both damages and a claim for equitable relief (ie. a declaratory judgment).

ILLINOIS Environmental/Estoppel/Pollution Exclusion/Bad Faith

The Appellate Court has ruled that a trial court did not err in declaring that Travelers owed coverage for Superfund contribution claims arising out of environmental contamination claims at two facilities where the insured had cleaned its chemical delivery trucks over the years. Even though Travelers had paid for the insured’s defense through independent counsel while its declaratory judgment action proceeded, the Fifth District ruled in Rogers Cartage Co. v. Travelers Ind. Co., 2018 IL App (5th) 160098 (Ill App. April 5, 2018) that Travelers’ refusal to make a further counter-offer after the underlying claimants asserted that they would not consider any further reduction in their demand was, in fact, an effort to intimidate its insured and put a stop to settlement negotiations. The Appellate Court found that although Travelers had initially allowed Peppers counsel to control the defense, as the date of trial approached it, in effect, took over the defense by refusing to allow its insured to settle at a crucial time during negotiations. Notwithstanding its conclusion that Travelers was therefore estopped from contesting its duty to pay the $7.5 million settlement that its insured negotiated over Travelers’ objections, the Fifth District further found that Travelers’ pollution exclusion defense would have been to no avail because the insured had placed chemical wastes into so-called containment ponds and had not expected or intended that they would be released into the environment. The court also rejected Travelers’ argument that the $7.5 million settlement was unreasonable or the product of collusion despite evidence that the insured had never informed Travelers that it would have settled for a $4 million cash payment from Travelers. Finally, the Appellate Court found that Travelers had acted vexatiously and in bad faith in refusing to settle and in threatening its insured by filing this action for declaratory relief. The court also sustained the lower court’s award of $2.6 million for the insured’s coverage fees, even though the $7.5 million agreement stipulated that any recovery would reimburse the insured’s fees in full before any remaining amount was disbursed to third parties.

NEW JERSEY Estoppel

The Appellate Division has ruled in Northfield Ins. Co. v. Mt. Hawley Ins. Co., A-1771-16T4 (App. Div. Mar. 29, 2018) that a trial judge erred in ruling that Northfield was estopped to contest its indemnity duties with respect to a subrogation claim arising out of Superstorm Sandy damage. Despite the fact that Northfield agreed to defend the insured under a reservation of rights without obtaining the express consent of its insured to do, the court found that the consent required by Eggleston could be both express or implied and that, in this case, the court should not have granted summary judgment since Northfield’s letter to its insured denying that it owed coverage but offering to provide a courtesy defense “might plausibly be interpreted as an offer of a defense, and not as the insurer's insistence on controlling the defense. And, if interpreted as an offer, CDA's following silence could be interpreted as acquiescence in Northfield's control of the defense; such a circumstance would not offend Eggleston or its progeny.” The Appellate Divisiion also raised—but elected not to answer—the question of whether a tort claimant and its subrogated property insurer had the right to compel coverage from a tortfeasor’s liability insurer under Eggleston.

NEW YORK First Party/Late Notice

A federal district court has ruled in Trustworthy LLC v. Vermont Mut. Ins. Group, 2018 U.S. Dist. LEXIS 42536 (N.D.N.Y. Mar. 15, 2018) that the insured four month delay in notifying its property insurer that a Days Inn hotel had suffered water leakage due to snow and ice damage, during which time that insured had already made significant repairs, barred coverage. The court declared that a four month delay was unreasonable as a matter of law, rejecting the insured’s excuse that it took him some time to find a public adjuster and was busy planning his wedding.

PENNSYLVANIA Bad Faith

A bad faith law suit that has been pending since 1998 and that arose out of a dispute between a motorist and his auto carrier concerning the replacement cost of a vehicle that was damaged in a 1996 accident took a surprising turn last week when Pennsylvania’s intermediate appellate court tossed out a $21 million bad faith award. In an opinion that was highly critical of the conduct of the trial judge, the Superior Court found in Berg v. Nationwide Mut. Ins. Co., 2018 Pa. Super. 82 (Pa. Super. Ct. April 9, 2018), that Judge Sprecher’s findings of fact were unsupported by the evidence and that the insured had not presented clear evidence that Nationwide had acted in bad faith, either by overriding an initial opinion that the vehicle was a total loss or insisting that it be repaired. The Superior Court also refused to find that there was clear and convincing evidence of “scorched earth” litigation tactics or discovery abuses by Nationwide that would sustain a claim under Section 8371. Judge Stephens dissented, arguing that the majority had improperly usurped the trial judge’s role as fact finder.

OTHER DEVELOPMENTS OF NOTE

* * * Inside the Insurance Industry * * *

A new Sigma study from the Swiss Re Institute finds that natural catastrophes cost property insurers a record $144 billion in 2017.

The Missouri legislature has given final approval to HB 1531. As we discussed in our March 23 edition, the bill creates an interpleader procedure whereby an insurer may deposit its limits into court to resolve cases in which multiple parties are claiming entitlement to the policy limits and is thereafter insulated from any extracontractual exposure or liability beyond the policy limits.

The Judiciary Committee of the Connecticut state Senate vote 24-16 last week to reject legislation that would have require insurers to provide broader “collapse” coverage and establish a $20 premium surcharge to raise funds to help homeowners with crumbling foundation claims that are not insured under their present policies. Undaunted by the vote, the chair of the Senate Appropriations Committee vowed that there would be a renewed effort to impose the surcharge before this year’s legislative session ends.

* * * New Coverage Litigation * * *

Sports nutrition company MusclePharm has filed a second suit against Liberty Insurance Underwriters again, alleging in MusclePharm Corp. v. Liberty International Underwriters Ins. Co., No. 18-2975 (S.D.N.Y.) that is entitled to coverage for claims by the SEC that it illegally filed accounting statement disguising executive compensation.

* * * Cyber Update * * *

A state judge in Massachusetts has rejected claims by Equifax that the Commonwealth of Massachusetts lacks standing to sue it for failing to safeguard. databases and private information maintained on behalf of the State.

* * * The Unfriendly Skies * * *

James Long, the Chicago aviation security officer who was fired last year after a video of him dragging a doctor off a United flight went viral, has sued the City of Chicago and United Airlines, claiming that he has suffered injury to his reputation and other injuries due to inadequate training and supervision.

* * * Sign Up Now * * *

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